Presented to:“Ethics and Changing Energy Markets: Issues for Engineers,

Managers and Regulators”University of Notre Dame

October 28, 2004

“Energy Market Restructuring and Its Ethical Challenges”

William F. Hederman, DirectorOffice of Market Oversight and Investigations

Federal Energy Regulatory Commission

WH-10-21-04

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1999 Order 2000

2001 California MMCP175

1935 FPA: Federal Power Act

1935 PUHCA: Public Utility Holding Company Act

1938 Natural Gas Act 1954 Phillips Decision

1968 NERC established

1970 Clean Air Act

1977 DOE, FERC created 1978 NGPA, PURPA

1985 Maryland People’s Counsel Decision 1985 Order 436

1990 CAAA901992 EPACT; Order 636

1996 Order 888

1997 PJM: 1st FERC- approved ISO

2002 1st FERC- approved RTO: MISO

Utility Holding Company

Abuses 1920s

Hoover Dam 1936

1st commercial nuke 1957Northeast Power Blackout 1965

OPEC Oil Embargo – energy crisis 1973-74

Three Mile Island 1979

Natural gas shortages 1970s

“Gas Bubble” 1980s

Chernobyl 1986

Last nuclear plant online 1996

NPC forecast: 30 Tcf 1999

California “Bluebook” 1994

California “melt-down” 2000Enron bankruptcy (12/02) 2001

OMOI established 2002Blackout 2003

Electricity and Gas Milestones

1977 Clean Air Act Amendments (CAAA)

1920

2004

EVENTS

POLICY ACTIONS

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The FERC strategy to provide dependable, affordable energy through sustained competitive markets has 3 elements.

Effective Rules

Infrastructure

Rules

Enforcement

CompetitiveMarkets

Just & ReasonableOutcomes

StrategicApproach

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Role of Ethics in Energy Industry Recovery

• Restore order

• Restore integrity

• Restore confidence in the integrity

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The energy industry, with the Enron legacy, is different.

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Market Integrity is Everyone’s Business

FERC Hotline:1-888-889-8030